Automatic Data Processing Inc. (ADP) stocks rose over the past two years, though it underperformed the S&P 500. By mid-June 2021, ADP rose by approximately 15.8% compared to the S&P’s gain of about 30.7%. Though hedge funds were selling, the company was added to the WhaleWisdom WhaleIndex 100 on May 19, 2021.
ADP is a provider of cloud-based human resources (HR) and payroll management software, data processing, and services, including analytics and compliance expertise. Their information technology solutions unite HR, payroll, talent, time, tax, and benefits administration. ADP has been weathering the coronavirus pandemic as many of its customers initially faced government shutdowns and were forced to lay off or furlough employees, and in some instances, close businesses. For ADP’s customers that forged through the pandemic, tax changes and payroll nuances presented new challenges, creating more demand for ADP’s services and expertise.
Hedge Funds Are Selling
ADP had a challenging first quarter with hedge funds actively selling the stock. The aggregate 13F shares held by hedge funds decreased to approximately 1.2% to 83.4 million from 84.4 million. Overall, 25 hedge funds created new positions, 96 added to an existing holding, 25 closed out their stakes, and 104 reduced their positions. Institutions decreased their aggregate holdings by about 1.3%, to 335.9 million from 340.4 million.
Positive Multi-year Estimates
Analysts expect to see earnings rise over the next four years, with growth from 2021 to 2025 spanning approximately 0.6% to 10.0%. These year-over-year estimated increases could bring profits to $8.60 per share by 2025, up from $5.96 in June of 2021. Revenue predictions include strong year-over-year growth that could bring estimated revenue of approximately $19.5 billion in 2025, up from about $14.9 billion in 2021.
Analysts Raise Price Targets
Barclays’ analyst, Ramsey El-Assal, raised ADP’s price target to $212 from $197, maintaining an Overweight rating on the shares. Peter Christiansen from Citigroup also raised their firm’s price target on ADP to $212 while keeping a Buy rating. Christiansen noted that the economy’s reopening from the pandemic should have a positive benefit for ADP. Mizuho Financial Group’s analyst, Dan Dolev, is also optimistic about the stock with a Buy rating. Dolev raised Mizuho’s price target on ADP to $220 from $210 in part due to ADP’s strong execution of services.
ADP continues to experience growth and come back from the initial pandemic-related slump it experienced in February and March 2020. The company has an extensive history in the payroll software and workplace management field, and demand remains strong. With optimistic estimates from analysts, the stock may prove a good long-term acquisition for patient investors.